Krugman, Keynes, Kalecki, Konczal

Paul Krugman’s recent columns, responding in various ways to JM Keynes, Michal Kalecki and Mike Konczal have made interesting reading, signalling a marked shift to the left both on economic theory and on issues of political economy.[^1] Among the critical points he has made

* Endorsement of Kalecki’s argument (which he got via Konczal) that “hatred for Keynesian economics has less to do with the notion that unemployment isn’t a proper subject of policy than about the notion of shifting power over the economy’s destiny away from big business and toward elected officials.”

* Rejection of the Hicks-Samuelson synthesis of Keynesian macroeconomics and neoclassical microeconomics and advocacy of (at a minimum) comprehensive financial controls

* Abandonment of the idea that the economics profession is engaged in honest intellectual debate, in favor of the conclusion that the rightwing of the profession, including leading economists, is characterized by denialism and bad faith. As he says, while many economists would like to believe otherwise ” you go to economic debates with the profession you have, not the profession you want.”

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I’m underwhelmed …

… to put it mildly, by Kevin Rudd’s endorsement of the Coalition/IPA proposals for a variety of tax and policy distortions to subsidise economic activity in Northern Australia.

I get that a certain amount of this kind of thing is to be expected in an election campaign, but I hope we don’t see too much more of it.

Labor, hiding its light under a bushel

A bit belatedly, a piece I posted on Crikey a couple of days ago, bemoaning Wayne Swan’s failure to tell the story of the government’s success in managing the GFC. His obsessive pursuit of a return to surplus with a fixed target date suggests to me that he never really saw Keynesian fiscal policy as anything other than a once-off emergency measure, and that the credit for the government’s courage in 2009 must go to Ken Henry and Kevin Rudd. Regardless, the government should be winning the economic debate hands down, instead of being on the defensive.

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Oz, NZ and the election

Following my earlier discussion of relative economic performance in Australia and NZ, I’ve been chatting with people in the NZ Treasury, and also with some of the macroeconomists in my own department. Its given me a number of research ideas I hope to pursue in the future, both with respect to possible ways the NZ-Oz gap might be bridged and more general implications about macroeconomic theory.

In the circumstances of the election what matters is the suggestion by Tony Abbott and others on the political right that New Zealand is a model for Australia to follow as regards macroeconomic policy. The key point is that NZ had a smaller stimulus than we did, and looks set to return to surplus a little earlier, though of course we know how unreliable such projections can be.

If, like Abbott, Hockey and (on even-numbered days) Robb[1], you regard budget surpluses as the paramount measure of good economic performance, there’s a case to be made here. But if you think that employment and economic growth are more important, Australia looks a whole lot better, as you can see from the graphs below.

Standard economic theory suggests that, when two countries have access to the same technology, comparable education systems, free labour and capital movements and so on, any initial differences in income levels should gradually be evened out. Instead, the Oz-NZ gap has widened since the GFC. Anyone who could seriously suggest NZ as an economic model should not be entrusted with the management of our economy.

OzNZ002
NZandothers

fn1. Not to mention Peter Costello and Wayne Swan, who seemed to view the stimulus that saved us from recession as an embarrassing departure from normality.

Election on 7 September

At least that’s what I’m reading. As I’ve argued before, I think this is a mistake for a number of reasons. In fact, I spent a fair bit of yesterday working up a piece arguing the case for allowing Parliament to sit again, and holding an election in October. [Irony on] If only I had run it on Friday, the course of history would doubtless have been changed [Irony off]. It’s now only of academic interest, in the pejorative sense of the term, so I’ll turn my attention to issues that actually matter.

My views on the election are simple. Whatever the weaknesses of the Rudd government, it’s far preferable to the disaster that Abbott would give us. So, I’ll certainly be putting Labor ahead of the Coalition in the House of Representatives. I’ll probably give my first preference to the Greens, though if my vote matters in Ryan, Labor will have swept Queensland. Both Labor and Greens have good local candidates, so I’d happily support either, and I’ll equally happily give my last preference to the LNP incumbent, unless someone truly awful runs.

The big issue is the Senate. Regardless of the Lower House outcome, it’s critical that a Labor-Green majority should be returned, and therefore that Labor and the Greens work together. This was one of Rudd’s big weaknesses last time round, and hasn’t been helped by some statements from his frontbench, or from perceptions on both sides of the way the last Labor-Green deal worked out.